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Will Saab rise like a phoenix from the ashes?

October 4, 2011

Saab hopes to begin selling the 9-4X, based on the Cadillac SRX, in Europe this fall.

Europe's worsening debt crisis, the rising fear of a global double-dip recession, a slowdown of China's growth, and rising raw material costs mean tough times for even the most successful automakers, and for a struggling brand such as Saab the troubles could deliver a fatal blow.

It has been a brutal year for the Swedish brand, which has now won a reprieve after a Swedish court granted it protection from creditors while it awaits funding from Chinese investors.

How did Saab end up in this mess? There are three key reasons.

1. Product: No brand can survive with a portfolio consisting of two lines. Add to that, the 9-3, launched nine years ago, is long overdue for an update, as was the 9-5, which was sold for 13 years--two life cycles--before the new generation arrived last year.

2. Brand: To fix the problem mentioned above, Saab's former owner General Motors launched the 9-2X, a rebadged Subaru Impreza a.k.a. the Saab-aru, and 9-7X, a rebadged Chevy TrailBlazer. This move upset Saab's core customers, who cherish the brand's quirkiness, and it did not win any new customers.

3. Production: Doing business in Sweden is costly. Wages are high. Taxes are high. Saab CEO Victor Muller said the company's break-even annual sale level was 80,000, a number that must make GM executives shake their heads in disbelief as this is only half as much as in the past.

Today, more dealers and customers are losing faith in the brand. That would be a tragedy for Saab's 3,700-person global work force, of which 3,500 are based at headquarters in southwestern Sweden. Saab's 900 dealers and 800 suppliers also would suffer.

What would make a shutdown even more frustrating to Saab fans is that the company is not far from reversing its product problem.

The new 9-5 sedan is in its first full year of sales. The 9-5 wagon was due to be at dealers early this year but that won't happen until production resumes.

Saab would love to start selling the new 9-4X crossover--which is derived from the Cadillac SRX--in Europe this autumn. The GM-built car went on sale in the United States in July.

The next-generation 9-3 was supposed to arrive in October 2012 and be underpinned by Saab's so-called Phoenix platform. Also on Muller's wish list are the 9-7 flagship, 9-6X large crossover and 9-1 entry-level car to challenge the Audi A1.

Sweet Swedish dreams! The reality is an ongoing fight for survival.

The company wants to sell a 29.9 percent stake to China's Zhejiang Youngman Lotus Automobile Co. for $180.9 million (136 million euros). Meanwhile, Pang Da Automobile Trade Co. offered to pay $145 million (109 million euros) for a 24 percent stake. The deals are expected to be approved in November, Swedish Automobile now says.

Honestly, $325.9 million (245 million euros) is a drop in the bucket. It will be hard for Saab to finance its expansion plans given that a completely new model line costs roughly $1.33 billion (1 billion euros).

Can Saab compete against premium brands just by buying engines from BMW? Also, will China sales really save the brand? The Swedes have high hopes for success in the world's biggest car market. But the automaker sold just 257 cars there last year.

So what is next--an amazing rebirth or quick death? I would love to see the brand rise like a phoenix from the ashes because I like the automaker, its design philosophy and its passionate people.

But I fear Saab's obituary is already half written and will read like this:

Saab (1949 – 2011)

Beloved Swedish automaker was the decade's first casualty in a market plagued by chronic overcapacity. Rest in peace.